I am bit frustrated because at the end of the day this bears the primary problems of the original proposal. It makes it look like they are doing middle income people a favor by "doubling the standard deduction"... But at the same time they want to get ride of personal exemptions which nullify that doubling.

Single people, married couples and couples with 1 kid will end at a slight advantage which shrinks as you move up that chain. Now families of 4 would be starting at a net negative base from where we are today.

My tax exempt income for the fed is at $28900, that would shrink to $24000 base. So I basically lose a whole exemptions. Its possible they could make it up with the child tax credit, but they are still showing the same number for that... If you managed to keep your household income under $110k after adjustments you basically were already getting those child tax credits. So families of 4 just get shafted for an extra $1000 in taxes in the 25% bracket...

Even on top of that doubling the standard while cutting exemptions if a fucking joke even for single people. Do tax payers really not comprehend that their net implicit tax break as a single earner is $10,300 because of exemptions not $6,300? They basically they just offered to shave a single earners tax burden by $1700 tax free dollars... $204 dollars a year or a whopping $17 a month, if you are 25% you get double that so I guess they are buying you dinner at $34 a month saved... Thanks for helping pay for my Netflix so that someone earning a million a year can save $25k a year... Tax relief my arse.

I mean it not a huge difference, but seriously can families not do basic math? What gives? How does shifting the core tax break away from families to people with no kids and on top of that make it look like a bigger break than it is by touting that they are doubling something?

The real tax relief here comes in the form of the estate tax removal and very high earners shaving 5% off the top bracket. So questionable changes for the middle class range and fat break for people pulling in millions.

Honestly I don't expect huge tax breaks but I do kind of expect not to see my federal tax baseline go up due to ass backwards modifications to long standing tax code to make things "simple" for people who can't count the number of people in their home and add some numbers together...

As a couple of DINKs, the only thing that affects us is state and local taxes, which knocks around $10k of deductions out of my tax bracket, so doubling the standard deduction makes it pretty much square in our case. Though depending upon everything else, we will likely pay more by some paltry amount (in the grand scheme of things).

There is also the fourth higher tax bracket that may or may not come, which would put the top bracket at some unspecified amount above 35%. It would be fine to get rid of the estate tax if the higher tax bracket is implemented high enough to make our system more progressive than its current form to make up for it IMO because most people shelter their money such that it won't be taxed anyway. Income tax is 46.2% of Federal revenue (mostly paid by rich people) and the estate tax is all of 0.6% (paid by only the wealthy people who may or may not have been rich), this could easily be made up with a higher tax bracket of marginal percentage difference.

I'll be very interested to see the continued development, where the exact numbers fall, and what the CBO estimates.

If the average person ends up owing about the same amount but having to do a lot less work to calculate how much they owe and document why they owe that much, I'll call that a win.

Is the average person actually calculating the tax due in each tax bracket? No one is, you look it up in a table or have software do the calculation. Reducing the number of tax brackets as "simplification" is absolute utter BS. So, the only simplification is 1 standard deduction vs. add up exemptions + a standard deduction. So, 1 less multiplication, and 1 less addition. That doesn't seem like significant simplification to me.

The 25% pass-through tax proposal (rather than sole proprieter income being taxed at the individual's normal rate) will *kill* a bunch of small businesses that are mom and pops. Lots of small business owners aren't getting into anything more than the 15% bracket...

If the average person ends up owing about the same amount but having to do a lot less work to calculate how much they owe and document why they owe that much, I'll call that a win.

Is the average person actually calculating the tax due in each tax bracket? No one is, you look it up in a table or have software do the calculation. Reducing the number of tax brackets as "simplification" is absolute utter BS. So, the only simplification is 1 standard deduction vs. add up exemptions + a standard deduction. So, 1 less multiplication, and 1 less addition. That doesn't seem like significant simplification to me.

I agree that the number of tax brackets is largely irrelevant to the complexity of the tax code. However many brackets there are, the mapping from income to tax is a pretty straightforward calculation. Reducing the number of tax brackets is something that sounds like it's making things simpler, but really doesn't in any meaningful way.

But that ideal where you can fill out your taxes on a postcard because we got rid of most of the deductions and credits, that would be a big deal! My own tax return was 36 pages last year, and I have to hold onto supporting documentation for each of them. Many folks on this site had an even longer one. If we can agree to eliminate most of these deductions in a revenue-neutral way, all of us who aren't accountants will be better off.

Without knowing if I'm staying in the 25% bracket or being moved up to the 35% bracket, I don't know if this is better or worse for me. Are the brackets still nominal? Or absolute? (not sure if that is the right way to say it...) I don't see anything in the document on that page that tells me what income falls into which bracket.

I also don't understand how our country can afford this. Our spending is sky high. Where will the money be coming from?

Now that people in income tax states can't deduct state taxes, can people in non-income tax states still deduct sales tax?

The 25% pass-through tax proposal (rather than sole proprieter income being taxed at the individual's normal rate) will *kill* a bunch of small businesses that are mom and pops. Lots of small business owners aren't getting into anything more than the 15% bracket...

Ouch.

-W

Article didn't present that well. About puked myself when I read that. Luckily I found the actual text of the proposal reads as such:

Quote

The framework limits the maximum tax rate applied to the business income of small and familyownedbusinesses conducted as sole proprietorships, partnerships and S corporations to25%.

Mustachians are not the sort of people who sit around moaning about how the government is keeping them down. We’re the people who look at what we got, figure out what we don’t like, and fix it.~Mr. Frugal Toque

This current proposal doesn't have too many numbers - I'd bet because they want some flexibility to make the thing look deficit neutral-ish before it is all said and done. Back in April, Forbes had an article with this graphic:

Not the whole story - doubled standard deduction will help some. Removing exemptions and most itemized deductions hurts others, but that shows the brackets that were proposed earlier.

Without knowing if I'm staying in the 25% bracket or being moved up to the 35% bracket, I don't know if this is better or worse for me. Are the brackets still nominal? Or absolute? (not sure if that is the right way to say it...) I don't see anything in the document on that page that tells me what income falls into which bracket.

I also don't understand how our country can afford this. Our spending is sky high. Where will the money be coming from?

Now that people in income tax states can't deduct state taxes, can people in non-income tax states still deduct sales tax?

I am suspecting at this time that "state and local tax" includes state and local sales tax, property tax, and income tax. I've already heard this characterized as an attack of red vs. blue on the basis of blue states having higher taxes, but rural vs. urban is definitely at play here. I pay more in property taxes on a 1/4 acre with a half descent house on it in the suburbs than my cousin who has 135 acres with a near equivalent decent house in the country already. Now I'm going to be double taxed on money I've already paid in taxes.

Modern Federal income taxes has always been about encouraging spending, saving, and lifestyles in certain ways (child deductions for little Americans, mortgage deductions so you're driven to buy a house, tax-advantaged accounts so you'll save at least a little for retirement, etc.). IMO the biggest departure in this proposal is what is being encouraged.

Since it is supposed to be "simple"- is it a flat 25% on all income? Or just income over the 12% level (like it would be now).

The brackets, I believe, will work the same as it is now. That's what that graphic is trying to illustrate. And really, the standard deduction would have to be much larger for a 25% flat tax to be at all workable - you'd be raising income taxes so significantly on so many people that nobody in Congress would have the stones to try something like that with the proposed SD and exemption changes.

The proposal, the way I read it anyway, seems to say that you get your 12% and 25% buckets as normal, but any pass-through business income that would have been taxed at a higher rate is only taxed at 25%. Similar to how long term capital gains are taxed currently at lower rates than ordinary income.

The proposal, the way I read it anyway, seems to say that you get your 12% and 25% buckets as normal, but any pass-through business income that would have been taxed at a higher rate is only taxed at 25%. Similar to how long term capital gains are taxed currently at lower rates than ordinary income.

That's how I read it too. Basically a MAXIMUM 25% rate on pass through income. If your income is lower it would be in the 0% or 12% brackets.

This would be a huge bonus to wealthy small (or just closely held) companies. S corps which require you have less than 100 shareholders would get this treatment and many consulting and law firms are structured this way.

I agree with the OP that the increase in the standard deduction + personal exemptions is small potatoes but will probably be trumpeted as a huge boon to the lower/middle class while the real action is on lower max rates, lower corporate taxes, and the repeal of the AMT and estate taxes.

This looks favorable for me. Washington State has no state income tax, I will be moving from the 15% to a 12% bracket, and have two children. The doubled standard deduction will easily cover what I used to claim on my schedule A.

Wow, if the rate maxes at 25% for small businesses/pass through entities, that's going to create a HUGE incentive for basically everyone to be a "business". Effectively a huge tax cut for anyone who earns a lot and is willing to have a tax attorney set up a business for them...

I am bit frustrated because at the end of the day this bears the primary problems of the original proposal. It makes it look like they are doing middle income people a favor by "doubling the standard deduction"... But at the same time they want to get ride of personal exemptions which nullify that doubling.

Single people, married couples and couples with 1 kid will end at a slight advantage which shrinks as you move up that chain. Now families of 4 would be starting at a net negative base from where we are today.

I find this so frustrating that this fact is being ignored. The current standard deduction plus exemption for a single person is 6,300+4,050=10,350. $12,000 is not a huge bump. And for someone who itemizes, it is usually going to be less. I live in California so I pay a high state tax. This year, even without owning a house, I would have itemized deductions of about $8,000 for state taxes and $1,000 for charitable deductions, so I am getting less of a benefit under the new proposal. If I owed a house I would be losing even more deductions. Now the charitable deductions won't affect my tax, or most people's, so there is a potential for a decrease in charitable deductions from average people.

The only taxes that I'm sure will decrease after reading through the tax proposal are for the very wealthy. In my experience, most people that I've seen who have high AGIs have a large amount of their income from passthrough entities. I can almost guarantee that Trump's income comes mostly from passthrough entities. If you are imposing a tax of what used to be 39.6% and is now 25%, that is a huge decrease in taxes for business owners.

Also I am interested to see if they repeal the estate tax, if that means that nothing is getting stepped up or if they are going to step up a some assets to a certain amount, like in 2010. With a current exemption from estate tax of $5.5 million per person, repealing the estate tax really is only helping the truly wealthy.

Wow, if the rate maxes at 25% for small businesses/pass through entities, that's going to create a HUGE incentive for basically everyone to be a "business". Effectively a huge tax cut for anyone who earns a lot and is willing to have a tax attorney set up a business for them...

-W

A similar plan worked well for Kansas.

If the 25% max passes, it'll be fixed quickly. There's no way tax revenue can take that hit for long.

People in high income tax and RE property tax states will be screwed under this plan. CA, NJ, NY, CT...

Hmmm....what do those states have in common?

Yup, exactly right!

Nothing in common, other than being high tax states. The OP oddly left out Pennsylvania and Texas, which would also be affected.

I'm more concerned with the potential for losing the ability to contribute to my retirement accounts pre-tax. I have seen a number of proposals that suggest that pre-tax contributions will go away, with 401/403/457 accounts to be restructured like Roth accounts. And then I have seen it suggested that that will not happen. I'm setting aside 54K every year pre-tax, and it would kill me if that had to stop.

People in high income tax and RE property tax states will be screwed under this plan. CA, NJ, NY, CT...

Hmmm....what do those states have in common?

Yup, exactly right!

Nothing in common, other than being high tax states. The OP oddly left out Pennsylvania and Texas, which would also be affected.

I'm more concerned with the potential for losing the ability to contribute to my retirement accounts pre-tax. I have seen a number of proposals that suggest that pre-tax contributions will go away, with 401/403/457 accounts to be restructured like Roth accounts. And then I have seen it suggested that that will not happen. I'm setting aside 54K every year pre-tax, and it would kill me if that had to stop.

I've already written my senators about this, making all 401k/IRAs Roth accounts would be devastating and cost my family thousands each year. Conveniently they didn't spell out any real details that would help our family, we have three personal exemptions so doubling the standard deduction would produce no net cut for us. If they raised the child tax credit and left tax advantaged accounts alone, it would help, but my gut tells me they will try to tinker with it since many in Congress will want this change to be "revenue neutral". In the end I fear us (my family) being saddled with paying for the wealthy's tax cuts.

I'll be surprised if tax reform passes under this framework. Cutting local and state tax deductions will devastate many of the wealthy middle and upper class people in the northeast and Texas. My guess is that the lobbyists will be out in full force soon.

I've already written my senators about this, making all 401k/IRAs Roth accounts would be devastating and cost my family thousands each year. Conveniently they didn't spell out any real details that would help our family, we have three personal exemptions so doubling the standard deduction would produce no net cut for us. If they raised the child tax credit and left tax advantaged accounts alone, it would help, but my gut tells me they will try to tinker with it since many in Congress will want this change to be "revenue neutral". In the end I fear us (my family) being saddled with paying for the wealthy's tax cuts.

I'll be surprised if tax reform passes under this framework. Cutting local and state tax deductions will devastate many of the wealthy middle and upper class people in the northeast and Texas. My guess is that the lobbyists will be out in full force soon.

I'll be writing my representatives also.

Making retirement accounts "after tax" will generate tax receipts short term, but will actually net the feds less money long term (since they forgo any tax on growth). Clearly a shortsighted change made to "pay" for someone else's tax break.

Every Gucci loafer wearing lobbyist will be on the ground and every k-street phone will be ringing off the hook. You "could" rework losing tax-deferred accounts so that it doesn't hurt middle and upper-middle classes, but I don't trust politicians to do that and neither should you.

I'm going to be the elephant in the room here, what this proposal is missing is a VAT. You want to boost manufacturing and spur economic growth? Strip the taxes out of the product before you export it like every other industrialized country.

Every Gucci loafer wearing lobbyist will be on the ground and every k-street phone will be ringing off the hook. You "could" rework losing tax-deferred accounts so that it doesn't hurt middle and upper-middle classes, but I don't trust politicians to do that and neither should you.

I'm going to be the elephant in the room here, what this proposal is missing is a VAT. You want to boost manufacturing and spur economic growth? Strip the taxes out of the product before you export it like every other industrialized country.

This proposal is nowhere near the tax reform that's been promised. It does nothing to really modernize the tax system and definitely doesn't bring us any closer to the taxation systems of other industrialized countries. It is simply a tax cut for certain individuals and corporations, disguised as a "simplification" effort.

This proposal is nowhere near the tax reform that's been promised. It does nothing to really modernize the tax system and definitely doesn't bring us any closer to the taxation systems of other industrialized countries. It is simply a tax cut for certain individuals and corporations, disguised as a "simplification" effort.

I'm going to have to mostly agree with you on this one. I try to find the good in the bad and even I'm struggling with this one without pretty significant changes.

Yeah, simplifying things would probably mean:-Eliminating most deductions/writeoffs/"loopholes". I don't care if you stored oil on an Indian reservation or you paid a lot for your car registration. None of that is deductible anymore. Maybe leave charitable giving, but that's about it. -Tax all types of income the same, maybe (ie, capital gains or stock options or healthcare benefits taxed at your ordinary income tax rate).-Allow the IRS to compile taxes for all W2 employees and mail a postcard that you sign if you agree or protest if you disagree - simplify the actual filing, too, which is what most people really care about.

Looks like head of household is going away and so are exemptions for dependent children? So as a single parent with two dependent college kids living with me, it looks like I'll lose out on this as the doubling of the standard deduction for a single person will be way less of a benefit to me than to a single person with no kids. (Maybe I'm understanding this wrong)

Also, I was often able to itemize. If I can't deduct my property taxes anymore (high property tax state) that really sucks.

I assume I'll still be in the 25% tax bracket, so it looks like my taxes will be going up...if this passes.

I live in NJ. Currently we rent but are looking to buy. By my calculation, using the Forbes graphic to estimate the new tax brackets, the elimination of the state and local deduction and the increase in standard deduction would eliminate any tax benefit for buying a house. That would increase my federal income tax bill if I buy by $7500. If I continue to rent, the increased standard deduction and larger 12% bracket would offset the lost state income tax deduction and I'd get a few hundred dollars of tax break, maybe larger if the child tax credit phase out is raised.

Also, the large standard deduction effectively eliminates the mortgage interest deduction for all but the most expensive homes. Add the elimination of the property tax deduction, and this would be a major drag on the real estate market in a lot of places, I'd think. I'm thinking twice about buying with this uncertainty.

Also, the large standard deduction effectively eliminates the mortgage interest deduction for all but the most expensive homes. Add the elimination of the property tax deduction, and this would be a major drag on the real estate market in a lot of places, I'd think. I'm thinking twice about buying with this uncertainty.

We had this problem with our first house. People kept telling us how amazing it was to be able to own a house and deduct interest, but the interest was too low.

I live in NJ. Currently we rent but are looking to buy. By my calculation, using the Forbes graphic to estimate the new tax brackets, the elimination of the state and local deduction and the increase in standard deduction would eliminate any tax benefit for buying a house. That would increase my federal income tax bill if I buy by $7500. If I continue to rent, the increased standard deduction and larger 12% bracket would offset the lost state income tax deduction and I'd get a few hundred dollars of tax break, maybe larger if the child tax credit phase out is raised.

Also, the large standard deduction effectively eliminates the mortgage interest deduction for all but the most expensive homes. Add the elimination of the property tax deduction, and this would be a major drag on the real estate market in a lot of places, I'd think. I'm thinking twice about buying with this uncertainty.

It'd be a boon to landlords, however. People have to live somewhere and if they're not buying, they're renting. Property taxes would still be a business expense, and with the pass through tax change, rental income would be capped at a 25% rate.

It's almost as if this tax proposal was crafted specifically to help specific parties -- those who own a lot of real estate.

One positive for us Mustachian investors in this plan is the fact that lowering the corporate rate is likely to result in the stock market going up. So the value of our staches should improve if the plan comes to pass. Otherwise there is not much to like in it for anyone other than the uber rich.

I'm unclear if the tax proposal passes, what fiscal year it will begin in. If congress approves some version of this tax plan in Q2 of 2018 could it be retroactively applied to the beginning and full duration of 2018? Or would it begin in 2019? For tax planning purposes, this is a critical distinction for both my business and personal activities.

We haven't seen many details, but am I correct in assuming that this could be passed under reconciliation rules (i.e. only requiring 50 votes in the Senate)? I believe that is how the Bush tax cuts were passed in 2001, which is why they expired after 10 years. Similar to today, the Republicans controlled Senate/House/Presidency for 2000/2001.

I struggle to understand this process, since the media often alludes to it, but for whatever reason (possibly the short attention span of a typical viewer) never provides further explanation. I'm guessing that the timing of this is not coincidental. The debate has been delayed to ensure that the bill can't and won't pass under reconciliation until next year. That allows the Repubs to take credit for passing tax reform with the promise of middle class relief during an election year. The reality likely won't be felt until 2019 when the law would go into full effect. The following link is an interesting read. It is a CNN article posted the day Bush signed the tax cut bill in 2001. The parallels to today's situation are unmistakable:

I am the tax codes dream. Homeowner with a stay at home spouse. I had about $24k in itemized and $16k in exemptions which seem to be going away.

This is the crazy thing. Getting rid of exemptions kills itemizing dead for most people. $16k in exemptions alone for a family of 4. Forget the state tax which is probably a quarter of that unless you are very high income.

Only in California or New York are you even likely to own a home who's monthly carrying cost is in a range where you might pay $24k a year in interest and taxes.

So basically we will be forced to take a standard deduction but at a disadvantage from where we were previously. They could have at least kept the new deduction closer to $30k like it was 6 months ago... Then at least it would be slight net positive for an average size family.

Unless of course they increase the child tax credit another $1000 or something. But honestly the exemption is simpler than a tax credit with a cutoff and phase out like the child tax credit.

This looks favorable for me. Washington State has no state income tax, I will be moving from the 15% to a 12% bracket, and have two children. The doubled standard deduction will easily cover what I used to claim on my schedule A.

The 15% to 12% is not as big a deal as it seems considering they are getting ride of the 10% bracket. If you add it up all the way to the last penny of income taxed in the old 15% and now 12% bracket it is pretty much a wash with maybe a trivial net benefit. At your family size you will lose more from the loss of exemptions than you will gain.

This is all assuming they keep the 12% transition to 25% at the same level for married and single. So far in every proposal outlined since the fall of 2017 they have implied it would remain in the same spot as the current 15% to 25% transition.

Whats most surprising to me is that usually a Republican tax cut tends to favor upper middle class earners as well as that is a traditional group leaning conservative and a pretty sizable voting block that tend to look closely at their tax rates.

This initial offering as it were pretty much shits all over people earning $100k-$250k through traditional means working for a company. Most families will see a minor tax increase. For what? So the fed can cut programs a give million a year earners a 5% tax cut? Its not like its even going to people who need it.

Any tax plan shitting on low earners is pretty much the norm but most tax cuts usually at least throw a bone to the top quintile.

And just to sucker punch us they want to kill the estate tax. A source of revenue with absolutely zero impact. In 2015 only somewhere around 250k households in the US had a net worth of $10 million or more dollars. Thats pretty much the threshold where you might actually have to think about estate tax in your will. Given that you can break up the 5 mill limit for each child and child in law.

I am the tax codes dream. Homeowner with a stay at home spouse. I had about $24k in itemized and $16k in exemptions which seem to be going away.

This is the crazy thing. Getting rid of exemptions kills itemizing dead for most people. $16k in exemptions alone for a family of 4. Forget the state tax which is probably a quarter of that unless you are very high income.

Only in California or New York are you even likely to own a home who's monthly carrying cost is in a range where you might pay $24k a year in interest and taxes.

So basically we will be forced to take a standard deduction but at a disadvantage from where we were previously. They could have at least kept the new deduction closer to $30k like it was 6 months ago... Then at least it would be slight net positive for an average size family.

Unless of course they increase the child tax credit another $1000 or something. But honestly the exemption is simpler than a tax credit with a cutoff and phase out like the child tax credit.

You're forgetting the state income tax which is a significant deduction for a lot of people. Residents of CA, NY, NJ, CT get hit with both state income and property tax, both very high.

Last year I paid about $16K in state income tax, $9300 in property tax (on a very modest $250K townhouse) and about $500 in personal property tax (on a Jetta that's a couple of years old). I couldn't deduct any (or most) of it because of AMT, but there are lot of residents who don't fall under AMT and would be significantly affected by these deductions and personal exemptions going away.

ETA: last I heard, this part of the proposal is DOA, anyway... I think at most what we'll end up with is a bare bone tax cut for corporations and some individuals but no simplification of the code.

Whats most surprising to me is that usually a Republican tax cut tends to favor upper middle class earners as well as that is a traditional group leaning conservative and a pretty sizable voting block that tend to look closely at their tax rates.

This initial offering as it were pretty much shits all over people earning $100k-$250k through traditional means working for a company.

Quote

You're forgetting the state income tax which is a significant deduction for a lot of people. Residents of CA, NY, NJ, CT get hit with both state income and property tax, both very high.

@#$%$#%, that's us! Last year we had ~$43K in itemized deductions, $20,250 in exemptions. Under Trump Tax, we pay taxes on ~ $15,250 more in the 25% bracket, so at least $3800 more, am I correct?

I am still concerned about them Rothify-ing the 401(k). Now I read somewhere that they are reducing the 401(k) contribution limit from 18.5k to 2,500.

Yeah, I just read that too. That would hurt me and many others pretty badly. Would shake up the FIRE community, pushing back ER dates by a bit by costing anywhere between a few and several thousand dollars per year lost to taxation. It seems like a foolish move to disincentivize saving, when most people’s back up is social security. This move would effectively push a lot of people to become much more dependent on the federal government for their support.

Actually ones with moderate income tax and moderate property tax as well. Especially if they are single. I looked my state and property tax in Georgia in 2012 was at least $8,000. (not where I live now) Which would get me 2/3rd of the way to the new supersized standard deduction. Honestly the loss of state and local taxes are most likely going to make me reconsider some charity donations. As things stand now, all my donations are above and beyond the standard deduction due to local taxes. I never really figured it with the exemption so it might not all be 100%.

If the 401k change simply caps traditional contributions at $2400, but allows Roth contributions to the previous limits, then I'm not so sure this is a bad thing for the big savers out there. These are often folks that wind up with "too much" money in retirement and have to struggle with things like RMDs pushing them into high tax brackets.

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